"Program Financial Statement"
UNCLASSIFIED Marine Corps Financial Statement Audit Update FY10 Consolidated Statement of Budgetary Resources Presented At: DON Financial Improvement Program Conference 06 January 2010 UNCLASSIFIED Agenda Why USMC is audit ready? Governance Documentation Testing and Training Status of USMC Financial Statement Audit Managing Audit Expectations Timelines Communication Responding to Auditor Requests (i.e., Provided by Client (PBC) Requests, Beginning Balance Testing and IT Audit Planning) 2 UNCLASSIFIED 3 UNCLASSIFIED Governance: The “Why” in Audit Readiness… Legal Requirements Federal Manager's Financial Integrity Act (FMFIA) of 1982 Chief Financial Officers Act (CFO) of 1990 Government Management Reform Act (GMRA) of 1994 Federal Financial Management Improvement Act (FFMIA) of 1996 Commandant of the Marine Corps White Letter 01-08 “A successful financial audit…is vital to the future health of our Corps.” Benefits Provides Congress with increased confidence in our ability to execute resources Better accuracy and timeliness Identify problem areas to OSD regarding Defense wide systems Enhance all of our processes 4 UNCLASSIFIED Successful Audit = Doing Business the Right Way! Support the Mission… …through more efficient financial business process translating requirements generation to a funded resource that better supports mission accomplishment. Secure Resources… …through improvements in financial performance and better employment of resources while promoting process examination that support continuous improvements and detection of waste and abuse. Speed in Communication… …through improved data reliability and timeliness that better empower leadership in decision making. Sustainment Strategy for Financial Improvement… …as a means to promote financial oversight and accountability in complying with legislative mandates and agency guidance to improve financial confidence. Societal Responsiveness… …as stewards of our nations resources and via accurate and transparent financial reporting. 5 UNCLASSIFIED 6 UNCLASSIFIED Application of the “Auditor Lens” Across 5 Key Strategic Areas Governance Sustainability 5 Key Strategic Areas Peformance Metrics Addressing the five Auditability Organization & Infrastructure Policies & Procedures strategic areas requires Management / Internal Controls an analysis of: Information People Systems 1. Internal Controls 2. Source Documentation 3. Reconciliations Data Integrity 4. Validity and integrity • Completeness • Rights and Obligations • Valuation Accurate, Timely, • Existence Relevant Financial Information • Reporting 7 UNCLASSIFIED Speaking the Audit Language: Supporting Financial Statement Audit Assertions The Marine Corps has linked relevant risks to financial statement audit assertions in order to better support audit evidence regarding: Recognition; Measurement; Presentation; and, Disclosure of information in the financial statements and related notes. Financial Statement 8 UNCLASSIFIED 9 UNCLASSIFIED Test 1: Engaged Commands in Audit-like Exercises through IPA (Completed) Purpose Remediation Validated discovery efforts by Modified audit assertion package examining key accounting to better reflect financial business processes and their related function and related internal internal control activities; controls. Validated the soundness of our Engaged in documentation risk-based, top-down approach to capture and transmittal exercise establishing internal control testing involving all Marine Corps strategies within the Internal Commands and DFAS. Control over Financial Reporting Better leveraged the use of (ICOFR) program; and, electronic document repositories. Enhanced accountability and ownership processes and internal controls. 10 UNCLASSIFIED Test 2: Validated Linkage to Detail Transactions in Core Accounting System (Completed) To support Financial Statement Line Item traceability, the following reconciliations occur: Standard Accounting, Budgeting Transactions and Reporting System (SABRS) Trial Balance Reconciliation Line Item Account Reconciliation SF-133 to SBR Reconciliation We have linkage from the detail transactions to the General Ledger to the Financial Statement Line. Reviewed, tested, and validated by Deloitte & Touche LLP through re- Source Document performance and Financial Testing Statement rebuild. 11 UNCLASSIFIED Test 3: Internal Control over Financial Reporting (ICOFR) Program (Sustaining Effort) Established ICOFR cycle POA&M that defines the process cycle materiality as well as sampling materiality in accordance with AICPA and FAM standards. Developed assertion-based risk matrix that can be used by the auditor in considering the nature/magnitude of possible misstatement risks. Evaluated internal control design and operating effectiveness through testing at the transaction-cycle level. (FY09 Sample > 6000) Reported weaknesses to senior management and developed a corrective action plan (monitoring) methodology that maintains focus on financial improvement. 12 UNCLASSIFIED Test 4+: Demonstrated Sustainable Audit Trail and Documentation Retrieval (Completed) Engaged in attribute testing that demonstrated audit sampling confidence. Supported management’s assertions for supporting documentation in order to proceed to the audit phase of the Statement of Budgetary Resources. Reinforced documentation and audit support requirements throughout the Marine Corps. Transaction Cycle Balance Cycle Presentation & Disclosure Source Documentation Testing… Occurrence Existence Occurrence …demonstrated Marine Corps’ ability Rights & Obligations the Rights & Obligations Assertions Completeness Accuracy to support the transaction audit trail and Completeness Completeness mitigate risks associated with Cutoff Transaction Cycle Accuracy Valuation and Allocation assertions. Classification Valuations 13 UNCLASSIFIED Test Results and Output: Improved Transaction Detail and Reconciliation Assessed financial management environment and identified dependencies, risks, and gaps to mitigating risk. Linked our systems environment providing traceability from requirements generation to financial statement presentation. Detailed transaction accountability from business feeder systems to the General Ledger (Budgetary and Proprietary). Produced detailed “Grid Sheets” to support auditor scoping and planning. Details transaction counts and amounts by Statement of Budgetary Resources (SBR) line item, system, location (Command), and other transaction identifiers. Full reconciliation of Fund Balance with Treasury supports the Statement of Budgetary Resources from a cash basis position. 14 UNCLASSIFIED Test Results and Output: Training and Update Conducted a series of workshops with field personnel in order to promote process and internal control understanding. Conducted audit summits to promote awareness and service provider support. Conducted field-level workshop and highlighted disconnect between key internal controls identified in IPA audit-like exercises and A-123 evaluations. Conducted audit preparation workshop in order to guide command audit expectations and introduce the auditor to field personnel. Continued auditor-lens documentation review of all processes. Engaged in a comprehensive review of business processes and prepared comprehensive process cycle narratives from which to further reinforce standardized financial management activities and controls. Enhances auditor understanding of core financial cycles and processes. 15 UNCLASSIFIED 16 Teams Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug UNCLASSIFIED Sept Oct Nov Ongoing Project Management & Status Reporting Overall Planning Draft Audit and Test Plans - Jan 22 and Final Audit and Testing Phase Test Plans - Mar Summary Memo October 18,2010 Reporting 5 Reporting Phase Teams Planning Documentation – General Risk Internal Controls Phase Formal Draft – Oct 27 Analysis, Entity Profile, ARA / SCES Updated Test Plans Briefing on Final - Nov 3 Summary Planning Memo Summary Memo May 27,2010 I/C Phase Management Letter Nov Due – April 2nd 24 EDP Planning EDP testing General and Application Controls Beginning EDP Internal Controls – SCE Obtain Sample Balances Downloads Selection Completion and IT Team Retrieve Documentatio n Test Documentatio n Internal Control Phase–Account Risk Analysis, Specific Budget Control Environments, Funding and Year End Testing Phase - Controls and Interim Testing Financial Reporting 3 rd Quarter F/S Team Testing and Roll-up Internal Control Phase –Account Risk Analysis, Specific Control Environments Budget Execution Year End Testing Phase – Controls and Interim Testing Team Site Visit Testing Proposed Timeline for USMC SBR Audit Effort 17 UNCLASSIFIED Audit Stakeholders & Communication Hierarchy Managing the conduct of the audit and issuing the audit opinion. Supporting the DoDIG by conducting the audit. Training, coordinating, managing and responding to the day-to-day audit efforts. Provides oversight and decision authority for 1. Responding to auditor the auditee. requests for information. External Stakeholders (i.e. DLA, BTA) 2. Facilitating site visits and walkthroughs of processes. Audit Sphere! 18 UNCLASSIFIED Audit Opinion Audit Evidence Communication Environment Accessibility Site Visits Reliability Data IT Communication and Collaboration Beginning Balances Documentation Control Environment Representations 19 UNCLASSIFIED Leveraging SharePoint in Audit Communication 20 UNCLASSIFIED Provided By Client (PBC) List and the Way Ahead First PBC list delivered on 10 Nov 2009 and levied 149 requirements. PBC segmented into three cycles (Financial and General, Information Technology, and Data Calls) across the four phases of the audit (Planning, Beginning Balance, Testing and Reporting). Response date varies among cycles and phases. Auditors are currently reviewing accounting data to begin sample testing in early January, 2010. Marine Corps has transmitted population data in support of beginning balance testing. Auditors are also reviewing PBC responses in order to define which systems will be tested. System reviews will potentially account for 45% of the audit effort. 21 UNCLASSIFIED 22